La Jolla Light: Because I worked for Utility Companies, I support Community Choice Energy

May 25, 2018 – La Jolla Light – Mark Hughes – Here’s a fun fact: From Jan. 1, 2013 to this year, SDG&E’s commercial electricity rates increased between 48 percent to 67 percent, depending on your service type and the maximum amount of electricity you use. Over that same period, the Consumer Price Index has risen just 6.7 percent. How is this disparity, this tenfold difference, possible?

It’s simple: People follow the rewards.

I know this because I spent my career in power generation, including stints at two investor-owned utilities (IOUs — and isn’t that an appropriate acronym!?) that operate under the same business model as SDG&E.

As a monopoly, this model doesn’t work for you, the customer. It’s actually incentivized not to. Here is a short list of what I mean by that:

1. IOUs can grow profits by overspending. The IOU is paid a guaranteed rate of return on its capital investments, which incentivizes the utility to build as expensively as possible. Example: SDG&E’s Energy Innovation Center on Clairemont Boulevard. This also includes building expensive power plants far, far away — and then building pricey transmission lines (more investment, more profit) to reach those facilities — instead of investing in local renewable projects that can provide jobs for people in our community. (More on this below.)

2. IOUs have no reason to shop around and often purchase overpriced power. SDG&E buys some of your power from third parties. There’s no incentive to pay bottom dollar — and they don’t. Over the last 10 years, SDG&E has typically paid well above market prices for wind and solar power contracts.

3. IOUs know how to grow profits by outwitting oversight. Here’s where the real money is made; see the increase mentioned above — 10 times the inflation rate. We in San Diego pay the highest rates in California (and some of the highest rates in the nation) while the CPUC complains that oversight is difficult rather than taking the IOUs to task.

4. The CPUC is a paper tiger. IOU executives can only be fired by their boards, but not by the public utility commissioners.

5. IOUs have no real incentive to build renewable power rather than fossil fuel power. Their thought is, we’ll buy renewable power only if the CPUC makes us do it. But, in that scenario, don’t expect us to keep costs down.

What can we do about this?

We can support the City’s proposed Community Choice Energy (CCE) program. CCE would provide competition to SDG&E, and you, as a customer, could choose who provides your electricity. SDG&E will still own the wires and provide billing services — but it will have to compete for your energy supply business.

What effect will this have?

For one, SDG&E will have to think twice about signing overpriced contracts for power. Because the City’s goal is to reach 100 percent renewable electricity by 2035, CCE is incentivized to build renewable power — and to build it here in the City (initial estimates show that solar panels, located within City limits on rooftops and parking lots, can provide the power we need). Then, SDG&E won’t be building expensive transmission lines to power plants hundreds of miles away.

The incentive structure between the two could hardly be more different. San Diego’s CCE, as a nonprofit entity, is incentivized to serve customers, not shareholders. Its primary goal is low-cost, increasingly renewable power. Here’s an example of how this is already playing out in hundreds of communities that have enacted CCE:

IOUs typically pay customers who install solar panels the least amount they legally can. The state’s CCE programs, on the other hand, generally pay higher rates — two to three times the mandated minimum.

Finally, what about our incentive structure as consumers?

As customers, we are incentivized to support CCE. It will result in lower electricity bills (this is true of the many other CCE programs throughout the State, which are all cheaper than their competing IOU) and cleaner skies.

Not surprisingly, SDG&E and its parent company, Sempra Energy, are fighting CCE with all the influence they can bring to bear. In that, they’re only doing what they’re incentivized to do.